Treasury’s Report on International Currency Machinations Now Has Some New Doo-Dads

By Matthew McMullan
May 02 2016 |
South Korea was among the countries named to a watch list the U.S. Treasury Department in its report to Congress on foreign currency exchange rates. | Photo by Josh Hallett

Five countries placed on a currency “watch list” after new criteria is considered.

It’s no news that the U.S. government is very hesitant to accuse another government of currency manipulation. And that hesitance is not a Democrat or a Republican thing.

Nope. It's a bipartisan thing with a track record to prove it: Twice a year, the Treasury Department must prepare a Report to Congress on International Economic and Exchange Rate Policies. That’s a twice-a-year- opportunity to actually name names in the currency manipulation game, which – in the event that Treasury actually ID’ed somebody – would open the gates to bilateral negotiations.

Yet Treasury has rarely done so. In fact, it has only done so only once, when it was run by the Clinton administration in 1994 and China earned the tag. But two-term President George W. Bush never did it. And two-term President Barack Obama hasn’t done it either.

Until now, kinda.

Last Friday, in its newly augmented report, the Treasury Department has placed five countries – China, Japan, Germany, South Korea, and Taiwan – on a watch list, of sorts, after those five met new criteria put in place by recent legislation meant to more forcibly address foreign economic policies that hurt American industries.

Another way to say it? With these criteria to consider, the semi-annual Report to Congress on International Economic and Exchange Rate Policies now will be much more specific.

Here are the three criteria to decide if countries are being unfair with the United States via their currency practices:

  • An economy having a trade surplus with the U.S. above $20 billion;
  • having a current-account surplus amounting to more than 3 percent of its gross-domestic product; and
  • one that repeatedly depreciates its currency by buying foreign assets equivalent to 2 percent of output over the year.

Notes Bloomberg:

China, Japan, Germany and South Korea were flagged as a result of their trade and current-account surpluses, the department said. Taiwan made the list because of its current-account surplus and persistent intervention to weaken the currency, according to the Treasury.

If a country meets all three criteria, it could eventually be cut off from some U.S. development financing and excluded from U.S. government contracts. …

Lawmakers working on the trade bill originally sought to include tougher penalties, such as tariffs, for currency manipulators. But the Obama administration opposed that part and it was eventually dropped.

Shoulda been some tougher penalties in there! But progress is progress. And according to Fred Bergsten of the Peterson Institute for International Economics, Treasury is well aware to that Congress wants it to treat currency issues seriously; if it doesn't, Congress won't budget on trade initiatives. Plus, the new critieria just gives Treasury more tools to work with:

“The whole idea is deterrence,” said Mr. Bergsten. “By laying out these specific markers…it significantly ratchets up the Treasury’s leverage.”